1. travel
2. tourist facilities
3. hotel

Real Estate
Quarterly
Q4 2014
Published since 2004
themoscowtimes.com/realestate
Retail
What’s New For Investors
E-Commerce in Perspective
Hoteliers Target Russia
class
Q4 2014
FROM THE EDITOR ............. 4
C O N T E N TS
for Hyatt International, Russia and
CIS, Eastern Europe, on how the
market is evolving.
WHAT’S UP
News and Topical Views......... 6
Developing a Key European
Market with Strong
Fundamentals ................................. 12
MARKET UPDATE
Long-term Opportunities for
those who can Weather the
Markets ................................................... 8
Robert Shepherd, chief development
officer, Europe, InterContinental
Hotels Group, says Russia is one of
its three main target markets.
Investors with their own sources of
financing are able to strike better
deals in the current market.
IN THE REGIONS
Traditional Retailers expected to Withstand Online
Incursion ............................................ 16
Russians would Migrate to
the Countryside.......................... 24
but only if the goverment dramatically upgrades infrastructure,
according to new research.
Retailers may even gain market
share if they embrace e-commerce.
Online Selling can help
Secure the Future of Physical
Stores...................................................... 18
INNOVATION
General director of KupiVIP,
Vladimir Kholyaznikov, explains the
strategy of the flash sales specialist.
Technology offers Lifetime
Savings on Running
Costs...........................................................26
No Destination is too
Remote for Online Fashion
Delivery ............................................. 20
Every building can gain from costsaving technologies but hotels can
benefit more than most.
Lamoda co-founder and CEO Niels
Tonsen on long distance selling.
LEGAL NOTE
Outlet Center attracts longstay Shoppers............................... 22
Land Law changes may
boost transactions ................... 28
MD of FASHION HOUSE
Group, Brendon O’Reilly, on the
unique strengths of outlets.
Rustam Aliev, Partner, Real Estate
and Construction, Goltsblat BLP.
MONEY MATTERS
INSIDER
The Internet won’t replace
the Skills of an Agent ............ 30
Opportunity Knocks for
Select Service and Lifestyle
Hotels ....................................................... 10
6
Takuya Aoyama, vice president
of acquisitions and development
Stephen Inscoe, founder and
CEO, Idinaidi.ru and Komesto.ru
APPOINTMENTS ..................32
12
16
themoscowtimes.com/realestate
3
FROM THE EDITOR
Q4 2014
Reasons to be
Cheerful, with Caveats
Publisher Ekaterina Movsumova
Editor
Mark Gay
[email protected]
Art Director
Maria Georgiyevskaya
Project Manager
Marina Khloptseva
Cover photo
Multifunctional Center Vodny/
Vladimir Filonov / TMT
The Moscow Times Business Review
Real Estate Quarterly Q4 2014 (№ 44)
Published: November 2014
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4
I
n the case of Russia, most of its exports are priced in dollars, so the
ruble’s fall does not appear to help the majority of exporters or contribute to growth. The government, in contrast, does feel a boost to the
budget from taxes on dollar-priced energy exports.
More worrying is the effect on inflation, which reached almost 8.5 per
cent at the end of October, driven by the inflow of petrodollars and the
rising cost of imported goods which become more expensive in ruble terms.
Russia’s central bank reacted to inflation by raising interest rates 150
basis points on the last day of October, hiking its main interest rate to
9.5 per cent. The central bank has raised interest rates this year by a full
4 percentage points, despite flagging consumer demand and a slowing
economy.
It is likely there will be higher rates to come as the government moves
from the ruble corridor to targeting inflation at the end of this year. Currency
speculators are betting that the government may have to float the ruble
sooner. The final months of the year could be interesting.
So can investors find reasons to be cheerful? They can, with a caveat.
The ruble needs to fall, but interest rates must come down, too. And that
requires the government to intensify the struggle against inflation.
That way not only would investors look positively at Russia’s high longterm growth potential, but consumers would regain their spending power.
There is some evidence of successful substitution of imports by locally
produced goods from the industrial sector. But analysts say that sanctions
or costly imports would have to stay in place for at least 12 months before
owners commit capital to increase production. This is unlikely to be the most
effective way to revive the economy.
Attracting new investment, both foreign and domestic, is essential.
Likewise, reviving consumer appetite is essential if the market is to absorb
the retail and warehouse space coming onto the market. Defeating inflation
suits investors and consumers.
Investors say time and again that what attracts them is the economy’s
rate of growth, not the current level of output. Policymakers must get rid
of the obstacles that stand in the way of regaining a higher growth rate.
Starting with inflation.
W H AT ’S U P
Q4 2014
THE FAMOUS ASYMMETRICAL FACADE OF THE REBUILT HOTEL MOSKVA / FOUR SEASONS
Much Awaited Four Seasons Hotel Moscow
opens its Doors
T
he Four Seasons Hotel Moscow opened on the site of the Hotel Moskva
in October. It is a new building that uses the famous exterior architectural
design of Alexey Shchusev from the 1930s.
Facing Manezhnaya Square it joins an A-list of hotels including The RitzCarlton, Moscow, the Ararat Park Hyatt Moscow and the Hotel Baltschug
Kempinski Moscow.
While replicating the original exterior and its double-height lobby, the hotel
adds underground parking and a 3,000 square meter spa. It has 180 guest
rooms, two ballrooms and five meeting rooms. The food and beverage offering
includes the Moskovsky Bar at street level and two restaurants on the second
floor. On the seventh floor the terrace, which has views of Manezhnaya
Square and the Kremlin, is suited to social occasions and pop up lounges.
The Four Seasons Hotel Lion Palace opened in St. Petersburg last year,
in a restored 19th century Russian palace and St. Petersburg landmark,
formerly known as the House with Lions.
SILVER MALL / COLLIERS INTERNATIONAL
Solving Siberia’s Low Saturation
space saturation compared to other Russian cities with similar populations,
said Anna Nikandrova, the regional director of retail agency department at
Colliers International Russia.
The shopping center is built around the concept of a fashion gallery of
30,000 square meters, accompanied by 180 shops, two restaurants and
a food court. Eastern Siberia’s largest entertainment center Bargruzin and a
13-screen cinema are among other anchor tenants.
T
Multi-Temperature Distribution Center
he Lenta hypermarket chain will be an anchor tenant of the Silver Mall
shopping center in Irkutsk, the city’s largest retail and entertainment center that is being built in Sverdlovsky district.
It will be Lenta’s first hypermarket in the region, in a deal brokered by
Colliers International.
With a gross leasable area of 57,000 square meters it is located in the
city’s most densely populated district at Ulitsa Sergeeva 3 and is due to open
in the second quarter of 2015. The population of the greater Irkutsk area is
home to more than 1 million people but the city has a very low level of retail
6
R
ussian grocery retail chain Verny has moved into a multi-temperature distribution center at PNK-Severnoye Sheremetyevo Warehouse
Complex, becoming the center’s first resident.
Verny’s warehouse of 49,500 square meters Verny was recently completed under a build-to-suit deal signed in October, 2014. As well as warehouse
spaces, PNK supplied service and motor transport facilities.
VERNY WAREHOUSE / PNK GROUP
Oleg Vysotsky, general director of Verny, said the launch of its own distribution center for its central branch “gives us the opportunity to increase the
quality of our logistics in the central branch and its 200 stores, and also to
expand our operation in this area.”
PNK-Severnoye Sheremetyevo is located in the Moscow Region, 27 kilometers from the Moscow Ring Road, along Rogachevskoe highway. The total
area of the A-plus warehouse complex is around 400,000 square meters.
Construction started in 2013 and delivery is planned for 2015.
About half of the more than 20 warehouses built by PNK Group are multitemperature warehouses, according to Oleg Mamaev, Executive Director,
PNK Group.
BREEAM First for Stadium
J
LL has completed the BREEAM certification process for a 45,000-seat
stadium in Samara, which was rated “good”, according to the design
and assessment method for sustainable buildings. It is the first stadium for
FIFA World Cup 2018 to be certified in this way.
As well as the sports stadium, the development will include shops and
cafes as well as other facilities for fans, in the Kirov district of Samara.
The environmental features include automated systems to reduce energy
consumption by 40 per cent compared to conventional buildings, materials with higher insulation or lower thermal conductivity, and heat recovery
systems. Other features include ventilation with carbon dioxide sensors,
facilities to separate, store and compact waste, and to limit water use and
leakage. Visitors will be guided towards public transportation. Research is
being conducted to minimize the impact of new construction on the local
ecosystem.
The standard BREEAM certification allows us to understand the strengths
and weaknesses of the project, said Andrei Kovalev, CEO of Arena design
institute.
SAMARA STADIUM / ARENA DESIGN INSTITUTE
MARKET UPDATE
Q4 2014
Long term Opportunities for those
who can Weather the Markets
By Mark Gay
Investors with their own sources of financing are able to strike
better deals in the current market but volatile exchange rates
and the rising cost of ruble finance could hold back growth.
8
ANDREY MAKHONIN / VEDOMOSTI
C
yclical pressures in
the real estate market
are compounding the
problems of slowing
growth, exchange
rate volatility and sanctions.
New delivery in the majority of
market segments remains excessively
strong, according to Anna Melnik,
Head of capital markets research
at CBRE.
It adds substantially to the growing vacancy rate and pressure on
rental rates.
She expects landlords to be under
pressure for the next two quarters,
with the market reaching a trough
near the end of the first quarter of
2015.
The outlook for the Russian economy looks uncertain due to those
issues that affect the investment climate in Russia such as sanctions
and geopolitical disputes. Further
declines in oil prices, continuing
ruble depreciation and tighter lending conditions are alarming investors
and are creating additional difficulties, Melnik said.
On the other hand investors with
their own access to capital say the
absence of momentum investors and
those attracted only to booming markets, has improved the transparency
of the market.
Jonathan Faiman, chairman,
Tempest Capital, said it is a tough
time to talk to western investors about
investing in Russia. But having expe-
rienced the crisis of 1998, he said
this was not the same kind of crisis.
“This is partly cyclical,” he said,
speaking at the Russia and CIS Hotel
Investment Conference (RHIC) in
Moscow in October.
“One thing we have learned is
that the most successful investments
are made at times of stress when the
markets are not crowded. These are
the times when the successful investors do things… Everyone thinks that
the consumer market in the country
will go on growing at a high rate,
much higher than where I am from
which is the UK.”
He said it was clear that there
is not a normal financing market
operating in Russia at the moment.
That is partly because banks are not
lending. ”It is a financial crisis if you
need to borrow money but if you are
looking to invest it is a great time.”
Consumer activity slowed in the
third quarter but some Russian food
retailers like X5 and discounter
Magnit gained market share.
In good times it is easy
to find finance and
less easy to succeed.
Conversely, if you can
convince an investor to
back a proper product
in a challenging market
you will succeed.
Georg Folian, chief financial
officer, Warimpex Finanz, said his
company had found it much easier
to refinance with local banks, which
know their own market, while foreign
banks can be “frightened of financing anything”.
However in Russia, today, the
market faces two problems. The foreign exchange rate makes it almost
impossible to use foreign financing
for a project that earns its income in
rubles — such as hotels that charge
ruble room rates. “And how can you
finance projects with 12 to 15 per
cent interest rates, which it is impossible to earn. Yes, in the good old
days you could do it in Moscow but
if you are looking long term you cannot earn that on your project so you
have to wait until the financial system
changes,” Folian said.
Melnik of CBRE said she expects
the next six to nine months to offer
good conditions for the implementation of opportunistic and value-added investment strategies. “The current
market is favorable for investors with
a solid financial position and creates
good possibilities to purchase quality assets at attractive price.” CBRE
expects the total volume of investment
in 2014 will be about $4 billion.
Expectations for 2015 are in the range
of $4 to 4.5 billion. “However, in the
second half of 2014 the situation has
been changing very quickly, and the
arrival of new facts from the geopolitical stage or oil market might change
the situation significantly,” she added.
Ara Aramyan, deputy general
director, MC Dynamo, speaking at
RHIC, said he was very positive on
hotel development in Russia. “It is a
fantastic time to build only with professionals, and when ad hoc investors and opportunists have left the
market.”
Q4 2014
Investment in Russian CRE, quarterly and moving
4 quarters average, USD mln
1
2
MARKET UPDATE
Share of local and foreing investors, %
Source: CBRE
3 000
29%
24%
30%
63%
86%
59%
71%
73%
65%
500
71%
76%
70%
37%
14%
41%
29%
27%
35%
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2 500
2 000
1 500
Vladimir Poddubko, head of
hotel business, A.N.D. Corporation,
said the crisis did not really affect
the decision making process
because hotels were a long-term
investment, involving management
contracts that are not five-year contracts but which start at 15 years. “A
couple of months ago we signed a
deal to develop a hotel in Moscow
over the next year and a half. We
have another three projects under
consideration. We see it as a good
opportunity to get good projects
at a reasonable price. Of course
there are problems getting outside
financing for projects,” he told the
conference.
The corporation had purchased
a distressed asset at a fair price, a
regional company that went bankrupt, and would continue the project.
It was also engaged in two conversions, from office to hotel, and
from apartments into hotel, along
with the new construction of a hotel.
Aramyan said his group was in
the process of developing its portfolio of hotels and added, “My experience shows in good times it is easy
to find finance and not easy to succeed later on and conversely if you
can convince an investor to back
a proper product in a challenging
market you will succeed.”
On the economy and financing,
Tempest’s Faiman said he was not
trying to convince foreigners to invest.
“We have our own cash that we
III 2014
III 2013
III 2012
III 2011
III 2010
9
III 2009
8
III 2008
III 2007
7
1 000
want to invest now.” Tempest is partnering with government on the North
Caucasus Resorts project, which is a
mix of public and private development. Although the project would
generate ruble revenues Faiman said
the resorts would compete on price
with European mountain resorts and
thus “there is a close link to hard currency revenues.”
The market has changed fundamentally over the past six to nine
months. It has gone from an environment where the currency was effectively a managed exchange rate to
one in which the currency is close to
free floating.
In Faiman’s opinion that the
change to a floating exchange rate
is essential for the development of
the country. It is not sustainable for
Russia’s economy to develop itself
with interest rates at current levels. He
would rather, as an investor, see the
currency falling and rates being low
rather than a protected currency rate
with higher interest rates.
“With that backdrop one must
realize that foreign currency is very
risky and with no business reason
your business can be destroyed if
you have taken inappropriate currency risk. One should try to match
these kinds of finance, ruble income
with ruble finance. “
Even with the move to a freefloating exchange rate, the Russian
market is not comparable with western financial centers, said Faiman. A
YTD
Foreign
western investor can hedge out all his
risk on the first day of a deal, using
debt and yield swaps. That is not
possible on the Russian market.
That doesn’t dampen the appeal
of the market — and there are lots of
opportunities, said Faiman. Russia is
still a high growth market and it is
possible to invest for the long term.
“We are not trying to make an
investment for today’s market but for
Local
Source: CBRE
what it will be like in five or 10 years.
I find it extraordinary how sophisticated and well educated Russian
consumers already are. They are
among the choosiest consumers that
exist anywhere.
“If you think back to what
Moscow was like seven years ago
it was a completely different market.
People can lose sight of the great
rate of change of this market.”
themoscowtimes.com/realestate
9
INSIDE VIEW
Q4 2014
Opportunity Knocks for Select
Service and Lifestyle Formats
Are you testing select service
before possibly using it more
widely in the CIS?
T.A.: We already have Hyatt Place
in Yerevan. Now there will be another in Jermuk, also in Armenia. We
should be very pleased if that turns
out to be the right product but it will
be inevitable that there will be some
tweaking. You cannot get everything
right the first time.
Swiss-based vice president of acquisitions and
development for Hyatt
International, Russia and
CIS, Eastern Europe
Mark Gay about plans
to expand the group’s
portfolio
of
brands.
Have you got a lot of projects in
the pipeline in Russia?
Takuya Aoyama: We have two
projects in Vladivostok, then Hyatt
Regency in Petrovsky Park, which
is Dynamo, and then Hyatt Istra
in Moscovsky oblast. These are
announced projects in Russia.
Outside Tashkent, Hyatt Regency,
Hyatt Place in Jermuk, Armenia and
we signed Hyatt Regency Almaty at
the end of last year.
And how are you evolving the
standard and service for hotels
in Russia and CIS?
T.A.: Hyatt Regency is our biggest
brand, your typical five star product.
The exception is Hyatt Place, which
is our select service product, more
mid market.
It is interesting that you consider
select service as an option. Some
10
consultants doubt that this concept would transfer very well
from the U.S. to Russia and CIS.
T.A.: I agree. To begin with most
select service products are born in
the U.S. It’s mostly about the food
and beverage. In the U.S. you have
a big kitchen where guests can go
and help themselves. If they want
hot food there is a touch panel. The
only cooking involved is warming up.
Here in this market we felt that is not
the best format so we prepare food
fresh, in an open kitchen, there is a
select menu, there is more seating
space so it feels less self service.
Hyatt Regency in Petrovsky Park
is part of the VTB Arena Project at
Dynamo Stadium including retail,
offices and residential units. It is
scheduled to open in 2017.
VLADIMIR FILONOV / MT
and Israel. He told
Are there any other trends or
evolutions on the market?
T.A.: One thing that is missing in this
market is a lifestyle hotel, like the
W. We have our own brand called
Andaz. If you look at the food and
beverage scene in this city it is a very
vibrant industry. These are people
who understand the range of culture
and the market should receive this
type of lifestyle product well but we
don’t seem to get it.
Any lifestyle brand that comes to
Moscow in the right location should
be successful or at least add something to the market.
HYATT
Takuya Aoyama is the
Q4 2014
The format, the way the service
is delivered does not follow the
sequence of a traditional hotel. It is
about the service delivery. So you
walk into the lobby and you expect
a reception but if you walk into
Andaz you don’t have a reception.
You have a sitting area where you
drink tea or coffee and in the meantime someone will come to you and
check you in. You can say it is more
casual: service without a tie.
Both would help but I don’t think on
their own they would transform the
market.
Is there any increased interest by
investors in other CIS countries in
place of their interest in Russia?
T.A.: I don’t think these are mutually exclusive. I don’t think a person makes a decision to invest
in Uzbekistan because he or she
does not want to invest somewhere
else. In many cases investors are
local, so if you are working with
a Russian investor you typically
work on Russian projects. I don’t
think there is a lot of cross border
investment.
Have you made much impact in
the regions outside of Moscow
and St. Petersburg?
MINNAERT/WIKIMEDIA COMMONS
Does the desire for that have to
come from the developers?
T.A.: We also do our own selling but
ultimately any product or brand has
to fit into a specific location, building, market and to specific aspirations of the owner. That we want one
brand or another does not always
mean that we get it.
Has there been a significant
slowdown or is the pipeline
going to run a bit thin over the
next few years?
T.A.: I think there is a general perception of a slowdown but that has
been going on since last year and
those things can be cyclical so we
don’t really know, we can’t really prove there is a slowdown or
attribute it to one particular event.
Maybe we are just on the downward curve of the cycle.
INSIDE VIEW
Lifestyle hotels are still an unfilled
gap on the Russian market, says
Aoyama. They have the potential
to attract customers looking for
less formal service.
Our entry into select
service is relatively
recent. In today’s
market that could be
the best approach,
certainly short term.
T.A.: Relatively speaking we haven’t
yet reached critical mass. That’s partially our strategy and partly the
result of the product we have. Hyatt
never wanted to be the biggest hotel
company on the market. We have
been known as a company that
offers a good relationship with the
owners and with good staff and that
is more important than being the
biggest. If we enter a new market
we want to be the best hotel in town.
That is a different approach from
some of our competitors. We are
careful about creating new products.
For example, our entry into
select service is relatively recent. In
today’s market that could be the best
approach, certainly short term. But
if you look 20 or 25 years ahead
probably you get a different picture.
Everybody knows that Moscow
is missing out on the wealthy
independent traveller. What has
to change in order to attract
them?
T.A.: Whatever makes it easier to
travel is always good, for example,
if the visa regime is easier or if there
is more capacity on local carriers.
Do you think the market has
need for more independent travellers or are you not banking on
them?
T.A.: If you are looking at business tourism that’s one thing. People
come because they have to. If you
are talking about leisure then the
ease and cost of travel is important.
What I would like is for people in
the private and public sector who
are doing business in this country to
promote Russia as a tourism product.
At least in Soviet times there was
Intourist. Maybe their campaign was
not sexy but they were doing it. I
was in Japan last month and even
my 76 years old mother noticed that
Russian airlines were doing adverts.
People do notice when something
like that happens.
I think this is one small step that
we as an industry collectively can
take. Russia’s image as a tourist
destination has not really changed
a lot. Moscow is a great place to
have fun, to eat, lots of culture from
high culture to underground, you
have everything here. If people got
to know about it, it would generate
more interest.
People in the industry have
remarked that there is not an
industry-run tourism agency, that
it’s run by officials when it needs
to be driven by the industry.
T.A.: Those officials are being official and that doesn’t help.
We should remind ourselves that
Russia has always been and will
always be a long term thing. We
had the Soviet Union 25 years ago.
In the early 1990s it was dangerous
to walk in the streets – and see how
much Russia has achieved. There is
no Russia without optimism and we
should remain so. I would be thrilled
to know how Russia will be in 25
years’ time if God allows me to be
healthy!
themoscowtimes.com/realestate
11
INSIDE VIEW
Q4 2014
Developing a Key European
Market with Strong Fundamentals
Two years ago IHG chose Russia as one
of its three main target markets in Europe
and it remains committed to the strategy, as Robert Shepherd, chief development officer, Europe, for InterContinental
Group,
Which countries, along with
Russia, make up your three target markets?
Robert Shepherd: If you take the
three focused markets were we are
going to drive national scale, there
is the UK and Ireland where we
have significant scale already, but
we need to increase our distribution
in London. If you take Germany it’s
our second focus market and it’s
much more early days there: we’ve
got about 60 hotels compared to
300 in the UK. We’re just now seeing momentum for the Holiday Inn
and Holiday Inn Express brands but
we’ve had to adapt and flex our
business model for Germany. Here
in Russia we started off with the
international travel flows and we
had all of our brands represented in
Moscow and St. Petersburg.
Then, in late 2011, 2012, we
looked at our strategy — we had
12
told
Mark
Gay.
carved off the Mid East and Africa
and put that with our Asia business
— and we refocused on Europe.
We set these three scale target
markets and we decided it was time
that we built off that foundation in
Moscow and St. Petersburg. The reasons are the emerging middle class
in Russia, the increasing business
travel and the need for high quality,
value-for-money brands like Holiday
Inn and Holiday Inn Express. That
is what led us to sign our multiple
hotel development agreement with
VIY Management’s portfolio company, Regional Hotel Chain. We
have signed three already and the
first of these, the Holiday Inn Express,
in Voronezh, opened in October.
What are the rival investment
destinations to Russia, or those
that compare and you put in the
same basket?
IHG
Hotels
R.S.: We looked at Turkey when we
established our three focus markets.
We looked at where we thought
we had sufficient demand, a compelling offer, a supply of investors
and an opportunity to drive national
scale. We initially looked at Russia
or Turkey because we have finite
resources, we cannot have scale
everywhere or spread ourselves to
thinly. Everywhere else is a key city
strategy where we want to get all our
brands into each of the great cities
across this continent.
We looked at Turkey but the
vast majority of the business is in
Istanbul, the hotel performance in
terms of RevPars falls off a cliff the
further away you get from Istanbul
and there is a huge proportion of the
leisure and resort business which is
not where we play.
So we decided that a combination of the unbranded supply, the
growing demand, the scale of the
opportunity, and our ability to deliver
a strong value proposition for owners
meant that we backed Russia.
We invested a little resource in
Istanbul to seed the market in Turkey
because we can see the situation
changing as that market becomes
mature. That is what we set out in
early 2012 and that is what we are
holding course to and we see no
reason to change.
And what about neighboring
markets?
R.S.: We have signed a few hotels
in Georgia, for example, in Bojormi
and Batumi. A couple of those have
a leisure component but we need
to consider the intra-regional flows.
We try to get our brands represented
in some of these key places in order
to establish each of the brands and
these were good opportunities.
Q4 2014
Why are there so many legacy
hotels in Moscow? In London or
any other city they would already
have been renovated and turned
into a branded or boutique hotel.
R.S.: About 62 per cent of accommodation supply is unbranded in
Russia. There is such a lack of quality
branded reliable hotels.
I think it is a measure of the maturity of the market and that as you see
the acceleration of the international
brands it will inevitably cause the
decline in the older stock and force
owners to invest.
We do a lot of work with owners to rebrand by taking something
that is unbranded or a lesser brand,
investing a little bit of capital and
helping to meet the brand standards.
In Russia one of the challenges
is that the structural problems of the
existing stock are too great. You
cannot simply redecorate. The rooms
are too small, or it is too difficult to
add air conditioning or the modernday facilities that you need into some
of the older Soviet blocks.
What is your minimum room size?
R.S.: Holiday Inn Express has the
smallest room sizes at just under 20
square meters but to use the real
estate more efficiently, we plan the
other spaces such that the gross area
of the building per room is only 34
square meters which is a very efficient
use of space. As well as tailoring our
brand we work hard to make sure that
we value engineer the construction.
Holiday Inn Express Voronezh has
been built with modular room units
that are fabricated in Germany and
shipped over. So have your typical
concrete construction to the ground
floor and then you bring these modules that consist of two rooms and a
section of corridor. You stack them up
and clad them and you would never
know: the quality is excellent and the
timesavings are exceptional.
These do have bathroom pods that
are put in at the factory but the
materials of which the room is made
are traditional: steel, plasterboard,
proper insulation and acoustics. The
materials are exactly the same as you
would use on site but the quality control that you can achieve in a factory
is that much higher. And when you
throw in the weather in Russia that
can interrupt progress it does have
something quite compelling to offer.
How much did it speed up the
process?
R.S.: We would expect construction
to take about 12 months rather than
24. That is the order of saving that
you could expect.
Are investors beginning to move
away from the traditional trophy
hotel?
R.S.: That still does happen, but if
you start at the western end of our
European patch we are seeing second- and third-generation owners
coming through. They have sold their
older hotels and built new ones. At
the other end of the scale in Turkey
or Russia there is a more ego-driven
It’s about the regions:
the emerging business
traveller, and investments in commerce,
in aerospace and the
motor industry.
The Holiday Inn Express
Voronezh-Kirova was built to a
modular design. Each unit comprised two rooms and a corridor.
The construction time was halved.
INSIDE VIEW
desire that is perfectly valid in its own
right: if you can, why not? But as the
business model establishes itself, as
hotels as an asset class establish
a reputation for high performance,
you see more professional investors
start to invest in it. They will be very
concerned not about the trophy but
what it produces at the bottom line:
they cost a lot to build and to staff, so
what is the right location and what is
the right brand?
Have the easy opportunities
gone in Moscow or is it still a
focus for you?
R.S.: We’ve just signed a Holiday
Inn Express in Moscow. We are
looking for opportunities for Crowne
Plaza, Holiday Inn and Indigo in
Moscow. It’s not that there are fewer
opportunities in Moscow and St.
Petersburg. It’s about the regions:
the emerging business traveller, and
investments in commerce, in aerospace and the motor industry. If we
look at the six regions that we want
to get into, there are 23 cities with
populations of more than one million people and there is next to no
branded supply. Those businesses
IHG
What is in each module?
RS: Everything except the carpet in
the corridor and the legs on the bed.
themoscowtimes.com/realestate
13
represent a demand that is currently
unmet.
If you go back a few years when
people were just beginning to
build regional hotels, a local
plant would develop a hotel in
order to have somewhere to
house visiting clients. Has the
motivation for building a regional hotel changing?
R.S.: In the regional cities you will
see local entrepreneurs who are
looking to diversify. I don’t think they
doing it anymore just to put up some
corporate visitors — and certainly
we do our analysis to see if there is
sustainable demand and then determine which brand fits: the limited
service Holiday Inn Express or the
full service Holiday Inn.
We see a mix of investor types
from the professional investor like
VIYM RHC who is looking nationally.
But when you get into regions you
see business people and entrepreneurs who are looking to expand
business in that region and they may
have established carpet factories
or whatever and then diversify into
hotels — and a hotel can be a great
cash generator.
How do you decide where the
location of the hotel should be?
Some of these cities don’t have a
dominating center.
R.S.: A hotel can create a hub within
a neighborhood and can be a firestarter for further development. One
thing we’re really proud of is the
investment in our two IHG academies in Moscow and three in St.
Petersburg, where we take graduates
and school leavers and train them in
the hospitality industry. We want to
be part of the infrastructure and create employment that can then deliver
great service in our hotels: building
hotels in these cities, creating local
economic wealth and employment,
and training the future staff of those
hotels who then become part of
our family and move around to the
new locations where we are build-
14
Q4 2014
ing hotels. It is that which can help
anchor a particular site in a city.
We go to places like Voronezh
where we saw the aerospace industry that is building up. We look at
existing supply, of which there is
typically very little and see if the
hotel brand is convenient for the
demand drivers in that location.
We do say, ‘no,’ quite often
because we don’t think the location is
appropriate. We don’t want to do a
hotel that is not sustainable and that
does not deliver the right economic
return over time. We have taken a
very firm view on the right owner, the
right location, and the right brand.
We call it “brand hearted” profitable
growth, which means high quality
in full compliance with our brand,
and profitable for us and the owner.
When you are signing a 20-year
management contract it is much better to be up front and honest.
In Moscow there has been a
pattern of hotels migrating out
to new business districts as the
municipality has improved transport hubs.
R.S.: And not just within Moscow!
Last time I was here we took a helicopter flight over Skolkovo business
park, with offices and units for startups, and theater, hotel and educational facilities. That is a phenomenal
investment and it shows the growing
maturity of the market. You start in
the center and migrate outwards and
you see these satellite cities pop up.
What about the southern coast
of Russia, what’s your view as a
group on that?
R.S.: If something is purely a resort
business that is not our sweet spot.
We need to see locations where
we are capable of winning and see
sustainable hotel demand for the
owner’s sake. We’ve not joined the
march to Sochi, though we are very
interested in the continued investments that are going on there.
We were very involved in the
Olympics in London to make sure the
Holiday Inn brand was front and center so we managed the athlete’s village to give them a hotel experience
rather than a student experience.
The south coast is something that
we would watch with interest but at
the moment we cannot see the business and demand drivers to support
that level of investment. If you talk
about the role of the government it
is really important for governors to
support investment and commerce
and hotels can be a real anchor
point. But there is an element of
chicken and egg.
We operate in nearly
100 countries and at
any time one of them is
going through its trials
and tribulations but the
fundamentals here are
so strong.
Part of IHG’s promotional campaign for the London summer
Olympics. For the first time an athletes’ village was run on the lines
of a hotel rather than a dormitory.
IHG
INSIDE VIEW
You adapted your business
model for Germany. How have
you tweaked it for Russia?
R.S.: We learned through research
that Russian business and leisure
travellers are very security conscious
so unlike the rest of our patch we put
safes in every room. We looked at
our breakfast, offering the Express
Start breakfast included in the price.
If you compare our North
American business which is more
homogeneous and then you look
at our European business, we are
spread across many more cultures
and geographies so we are quite
used to adapting. In Russia we have
porridge and zapekanka on the
menu. It is all about tailoring the
offer.
We operate in nearly 100 countries around the world and at any
time one of them is going through its
trials and tribulations but the fundamentals here are so strong.
MARKET UPDATE
Q4 2014
Traditional Retailers expected
to Withstand Online Incursion
By Yekaterina Yezhova and Mark Gay
Some market segments are already feeling the impact of competition from internet retailers but the retail sector as a whole is expected to survive the competition. Some retailers may even gain market share if they straddle both channels.
16
KUPIVIP
R
ussia’s rapidly evolving internet market is
proving a launchpad
for the development
of e-commerce. The
country has a rapidly-growing
cadre of internet users, numbering
70 to 75 million. Of these, 22 million
have purchased an item online at
least once.
Online retail turnover in Russia
accounts for just over 2 per cent
of total retail sales, but conventional retail stores are forced to
take notice. E-commerce affects
segments differently: consumer
electronics, home appliances and
media content are impacted the
most, and grocery the least. Even in
grocery, however, about a third of
consumers research their purchases
online. As an indication, the share
of clothes and footwear online
sales stood at 14 per cent of total
turnover for the segment in Russia
in 2013, Vitaly Zhigulin, executive
director of the Internet Commerce
Companies Association (AKIT), told
The Moscow Times.
“The largest and most conscientious online retailers, running business in Russia, are busily investing in
the development of warehouse and
logistical centers on the country’s
territory. They are large employers
and tax payers for the Russian budget,” Zhigulin said.
Not all e-commerce sales and
distribution results in business on
Russian territory. “Many foreign
operators, take advantage of loopholes in the law to organize distance trade with Russian buyers,
however they have no representative offices in Russia and ignore
the imperatives of local laws. In
Analysts assess the turnover of the
Russian e-commerce market will
reach 1 trillion rubles by the end of
2015, or more than $23 billion.
essence, such a model enables
players to run business while they
are located beyond the jurisdiction of the Russian tax and customs laws, as well as the norms
safeguarding consumers’ rights,”
Zhigulin said.
The e-commerce market has
grown steadily over the past three
Q4 2014
years, at a rate of 20 to 30 per
cent. Assuming the faster growth
rate, the market will exceed 1 trillion rubles, or $23 billion, some
time next year.
CBRE cautions that there are two
major obstacles for e-commerce
development in Russia. “Firstly,
when purchasing goods visual
and tactile elements play a greater role for Russians compared to
other nations. Almost 57 per cent
of Russians say that they would buy
more online if this process were
more reliable in terms of quality of
sold goods.” said Maxim Palt, analyst in the research department of
CBRE. “Secondly, the underdeveloped logistics sector does not allow
for achieving satisfactory delivery
times and costs when customer is in
the regions.”
“Online trade channels would
not be perceived as a serious threat
to offline retail even if the above
mentioned problems were to disappear. According to the European
experience, development of online
channels by a retailer usually contributes to a reduction in its leased
space of only 8 to 10 per cent.”
In Russia this trend has already
started in the ‘white and brown
goods’ (appliances) and FMCG
sectors, he said.
Meanwhile only half of all
Russian users actually buy online,
compared to 60 per cent in the EU,
more than 70 per cent in the U.S.
and more than 80 per cent in the
UK, according to AKIT’s figures.
The combined market for offline
and online retail in Russia grew by
9.1 per cent from January to March
to 11.9 trillion rubles, compared
with the same period the year
before. Online sales accounted for
some 700 billion rubles, or $16.5
billion. Online sales of material
goods in the country increased by
27 per cent in 2012, reaching 280
billion rubles, and by 34 per cent in
2013, to 363 billion rubles.
What those numbers show, said
Zhigulin, is that the share of e-com-
What will impact retail
is same-day delivery.
Retailers will need
a shop for people to
touch and feel the produce but the web will
drive purchases.
1
merce is expanding across the
whole retail industry, both offline
and online. It was just 2.3 per cent
as of the end of 2013. AKIT expects
that the share of the Internet trade
in the retail commerce may reach 9
to 10 per cent by 2020. That compares with more mature markets like
the U.S. at 11 per cent and 13 per
cent in the U.K.
The Russian-speaking Internet
segment, so-called Runet, comprises 40,000 stores, with just 5
per cent accounting for 90 per cent
of total sales. The top 10 Internet
stores includes such clothes and
accessories retailers as Otto Group,
Wildberries, Lamoda and KupiVIP
Group.
As a measure of the growth of
e-commerce, retailers’ online revenues are revealing: Otto Group’s
online revenue, including sales
tax, stood at 18.3 billion rubles
in 2013; that of Wildberries, 15.5
billion rubles; Lamoda, 7.7 billion
rubles; KupiVIP Group (KupiVIP.ru
and Shoptime.ru) 6.1 billion rubles;
and LaRedoute, 2.5 billion rubles,
according to EnterVision, a center
for sectoral studies. A.T. Kearney
estimates that no single player has
more than 4 percent of the market
for multichannel or online sales.
The expansion of internet retailing is changing the way people
shop, said Hadley Dean, managing
partner Eastern Europe, for Colliers
International. “Where e-retailing is
leading, no one really knows but
shops are becoming more of a
destination where you go in and
look at goods but don’t necessarily buy them. What will impact
retail is same-day delivery. When
Breakdown of consumer spending, 2014
Country
US
UK
EU
Russia
Average annual spending of
online buyer,
y US dollars
Average bill,
US dollars
1,847
1,789
1,251
828
119
99
82
75
Source: AKIT
MARKET UPDATE
that becomes reality, as it is in San
Francisco and Los Angeles, that is
when it will affect bricks and mortar retail. Retailers will still need a
shop presence for people to touch
and feel the produce but the web
is increasingly likely to drive actual
purchases.”
Internet retailers are already
impacting demand for warehouses. In March 2014 the consumer
electronics retailer Russia Eldorado
subleased 3,500 square meters of
Class A warehouse in Moscow for
its new Internet business. CBRE represented the tenant, IXcellerate, a
carrier neutral data centre which
subleased its premises to Eldorado.
The Class A warehouse in Altufievo,
Moscow belongs to SMAK.
At the other end of the delivery
chain, the customer has to collect
the goods. This can mean in-store
collection, which has the attraction
of bringing the customer into the
store where he or she may make
further purchases.
The Russian company Qiwi, of
the ubiquitous payment terminals, is
also trying to overcome one of the
obstacles to the growth of e-commerce, namely the state-run postal
system. Last year it launched a pilot
project to test Qiwi Post terminals
allowing customers to collect packages, for a fee, from convenient
locations like shopping centers and
train stations. Most online sales, 75
percent, occur in Moscow and St.
Petersburg.
Clicks and mortar are likely to
coexist for some time yet. PwC says
its clients report that 80 per cent
of Internet users still visit a store at
least monthly. Not only does online
shopping not necessarily reduce
the role of physical stores, but multichannel players have an advantage over pure players.
In some countries, “click and
collect” is growing faster than home
delivery – though not as popular
as free delivery, PwC reports in
“Achieving Total Retail”, published
in the spring.
themoscowtimes.com/realestate
17
Q4 2014
Online Selling can
help Secure the Future
of Physical Stores
KUPIVIP
The Internet has had a stronger impact on sales of electronic goods
than clothing but “clicks and mortar” retailers who combine the techniques of
online and offline retailing are the ones who stand to gain most. Yekaterina
Yezhova spoke to the general director of KupiVIP, Vladimir Kholyaznikov.
18
How do you organize your logistics in general? Do you use warehouses on Russian territory?
Vladimir Kholyaznikov: KipiVIP.ru
works as the largest flash-sales player, meaning that we sell huge quantities of goods within a short period
of time. We receive by far the majority of goods from the warehouses of
suppliers around the world. In order
to ensure the trouble-free delivery
of goods under promotion, the
company operates two large warehouses: a storage facility in Berlin
and a distribution center in the city
of Klimovsk, the Moscow Region,
which processes and packs goods
prior to their dispatching to buyers.
Our distribution center is capable of
accommodating and processing up
25,000 units of goods a day in an
ordinary mode and about 50,000
units in peak seasons.
How do you deliver goods to
clients? Are you responsible for
the process yourself or do you
cooperate with local delivery
companies?
V.K.: We have our own delivery service in the Moscow and Leningrad
regions. Its main advantage is that
the client can choose any time period with an interval of three hours
from 9 a.m. till 9 p.m. and receive
goods. It’s an exclusive timescale
of delivery among all Internet stores
in Russia. For regions we have an
KUPIVIIP
MARKET UPDATE
Q4 2014
extensive branch delivery service
organized via 250 local delivery
services providers. They could be
local or federal companies depending on the size of a city or a town.
Thus, about 90 per cent of all
purchases are delivered either by
KupiVIP.ru directly or involving technologies and systems worked out by
us and applied by our local partners. One of our strategic objectives
is to control the delivery of goods
at all stages: from dispatching at
the supplier’s warehouse up to the
customer’s door.
How have the dynamics of your
sales changed over recent years?
What do you expect in the nearest time?
V.K.: One of the most evident
changes is the recent, dramatic
transformation of foreign exchange
rates, which have heavily affected
the consumer. Naturally, people
have reduced purchases of expensive fashion items under these conditions. People were trying to make
big investments, like real estate and
cars. Many markets expanded in the
crisis period.
The fashion market, on the contrary, saw a kind of stagnation as
people are inclined to postpone buying clothes in the short term. Despite
certain fluctuations in the economy,
we feel confident as a business and
regulate our growth rate ourselves
through our financial capabilities. At
present, we are growing faster than
the market, at 30 to 35 per cent
on the year. We find this growth
rate to be the most efficient from the
point of view of the need for additional investments. With this in mind
we have established good relations
with key suppliers. We have official
accreditation to sell brands, the trust
of our clients and the premium discount fashion floor model, almost
the only such one functioning on the
market.
Certain segments will
be suppressed by
the online industry.
In the U.S. 60 per cent
of sales of electronic
devices and household
appliances are online.
A flexible approach to delivery,
between the hours of 9 a.m. and 9
p.m. has helped attract customers.
What segment of clothes and
footwear is the most popular?
V.K.: Dresses account for more than
a third of purchases of female clothes
on the KupiVIP.ru web site. The second most popular category is outerwear, like jackets, coats and raincoats, accounting for about 17 per
cent of purchases made in the female
clothes category. About 25 per cent
of male visitors come to us for outerwear, while 21 per cent come for
T-shirts, polo and other shirts, and 12
per cent for designer jeans.
As to women’s footwear, more
than a third of sales on KupiVIP.ru are
presented by shoes and open-toe
shoes, 30 per cent are represented by boots and ankle boots. Men
equally prefer shoes, moccasins,
boots and ankle boots, accounting
for 36 per cent of sales in the men’s
footwear sales category.
How strong is the seasonal factor
in sales?
V.K.: A choice of apparel and footwear is always bound to the season, because the idea of KupiVIP.ru’s
work is to furnish clients with promotions linked to the season: winter
clothes in winter and light things for
summer. Such a temporary arrangement of promotions on the web site
enables producers, or brands, to get
rid of seasonal stocks in time and
clear their warehouses of previous
collections, and we can supply the
client with the most modern offers at
the lowest prices on the market.
MARKET UPDATE
How do you view prospects of
physical stores in Russia and
abroad?
V.K.: There are certain segments of
the market that will be suppressed by
the online industry with an increasing
force. Let’s take the U.S., for example: 60 per cent of transactions in
the market for electronic devices and
household appliances are carried
out via the Internet. It’s clear now that
offline players are facing difficulties
because they ignored online rivals.
The apparel market is less sensitive to the influence of online players.
The peculiarity of the market is that
customers, in particular ladies, like
buying things offline, as they enjoy
the process. But here we will also take
a notice of the trend towards online
activity. I think that those players who
opt for a multi-channel approach will
win by balancing their sales and
attracting new customers.
It is already apparent that multichannel customers spend more in
total. And those full-price projects,
which offer online channels but with
the same price policy as their physical counterparts, have very low sales.
In order to safeguard one’s main
price policy, such players may think
of alternative methods of sales, for
example via discounters, coupon services, flash-sales and so forth. It will
enable them to offset sales and continue to remain in the channels that
are convenient for customers without
splashing out money on the creation
of their own infrastructure.
KUPIVIP
Could you quantify any trends in
style preferences of your clients?
themoscowtimes.com/realestate
19
MARKET UPDATE
Q4 2014
No Destination is too Remote for
Online Fashion Delivery
LAMODA
Where did the idea to create
Lamoda come from?
Niels Tonsen: By the time we
founded the company, the Internet
as a channel of retail sales had
grown rapidly in the United States
and Great Britain. People realized
how convenient it was to choose
from a huge range, and then to
get them with free home delivery.
We saw that in Russia this business
model had great potential in the
mass-market segment.
With its own consultant stylists and frequently updated fashion lines, Lamoda.ru is
an e-commerce phenomenon. Its customerfriendly policies, like “try before you buy”
and right to return were new to online
retailing, as co-founder and CEO Lamoda
Niels Tonsen told Marina Marshenkulova.
20
How are you going to expand
the business further?
N.T.: We started with a regional
expansion, aiming to cover the
entire Russian market, then we went
outside of Russia. In 2012, Lamoda
started working in Kazakhstan,
becoming a leader among online
clothing and shoe stores, then, in
2014, Ukraine. In the future, Lamoda
will continue its international expansion and will be released in the new
markets of the CIS. We strive to
ensure so that in Russia and the CIS
everyone knew that for the fashion
goods they should turn to Lamoda,
and get the most out of shopping
at our online store. For this it is
necessary to expand its geographic
presence, constantly improve the
service level and create new service
benefits enabling customers to make
the process of buying clothes and
shoes as easy as possible.
How do you attract investment
for your projects?
N.T.: The project Lamoda was created with the support of the world’s
leading investor, Rocket Internet.
Over the past three years, we have
attracted several major investments,
including a record for the Russian
e-commerce market attachment in
the amount of $130 million from
Access Industries, Summit Partners
and Tengelmann. Other investors
are Holtzbrinck Ventures, Investment
AB Kinnevik, JP Morgan Asset
Management and PPR Group.
What challenges did you face
while starting your business?
N.T.: As the business develops, the
problems change. First, the main
difficulty was the prejudice of clients toward online shopping: many
simply didn’t understand why and
how to use an online store, they had
doubts about the quality of goods
and so on. We made the purchase
conditions so transparent and beneficial that gradually we managed
to overcome those fears.
Then we saw there was not
enough technology capacity for
development: the infrastructure of
Russian market just couldn’t cope
with our requirements. So we had
to build our own: to open a delivery
service, to build a warehouse.
How would you define the internal culture of your organization?
N.T.: Lamoda’s corporate culture is
based on the principles of mutual
respect and teamwork that requires
demonstrations of personal responsibility and initiative at all official
levels. Our company actively helps
employees to achieve their potential. Thanks to the team spirit, the
employees identify themselves with
the company and that helps to fulfill
our commitments to the customers
because they are interested in the
success and prosperity of the firm.
How do you motivate your
employees?
N.T.: We have a motivation system
in Lamoda including remuneration,
Q4 2014
LAMODA
NT:
development of the social package,
guarantees and compensation,
assistance to the staff in addressing social and domestic issues. We
encourage staff development and
offer training, free foreign language
education, mentoring system for
new employees and, of course,
prospects for career advancement.
What is unique about the products and services that Lamoda
provides?
N.T.: Lamoda offers the best level
of service and a wide selection
of products — our range includes
more than 900 brands of clothing
and accessories. In addition, thanks
to the courier service, Lamoda
Express, residents of 44 Russian cities can receive their order the next
day after clearance and try things
on for free before buying.
MARKET UPDATE
When was the first time you felt
like an entrepreneur?
N.T.: I became interested in business at an early age, when I
started to read books about successful entrepreneurs. I admired
the opportunity to build a successful business out of nothing. At 16
years I started helping the local
German retailers to sell products
online. It was a very interesting
time when the owners of small
shops were just beginning to look
closely at the Internet.
Ten facts about Lamoda
It has 350,000 social network subscribers | The furthest delivery was 3,700 km | An operator responds in an
average of 8.6 seconds | The longest conversation with a client lasted 1 hour and 40 minutes to order 48 items |
The most expensive order amounted to 1,012,742 rubles and consisted of 319 different items.
The founders of Lamoda are Niels Tonsen, Florian Jansen,
Dominik Picker and Burkhard Binder.
The first order was made in March 2011.
Within three and a half years Lamoda employed more
than 2,500 people.
The collection of online store is updated daily and has over
2 million items from more than 1,000 brands.
Slogan: “Fashion with delivery.”
It has attracted more than two million customers.
Free shipping all over Russia; refund within 365 days,
online consultation with stylists.
Still using print — for seasonal magazine
One of the company’s investors is a French holding company PPR which owns Gucci, Yves Saint Laurent and Puma.
In June 2013 Lamoda received $130 million from Access
Industries, Summit Partners and Tengelmann — the largest
investment in Russian online commerce.
Source: Lamoda
LAMODA
While the company delivers to more
than 40 cities, the longest actual distance to supply an order was 3,700
kilometers.
themoscowtimes.com/realestate
21
MARKET UPDATE
Q4 2014
Outlet Center attracts
long-stay Shoppers
Physical shops have a strong future, as
Brendon O’Reilly, Managing Director
of FASHION
HOUSE
Group, told
FASHION HOUSE GROUP
Yekaterina Yezhova. After its first year
What is the total area of
Fashion House and how many
brands does it accommodate?
Do you plan to invite new brands
onto your floor in the nearest
future?
Brendon O’Reilly: The total gross
building area (GBA) for FASHION
HOUSE Outlet Centre Moscow
will be 38,600 square meters,
with gross leasable area (GLA) of
28,640 square meters and 165
stores in total. The first phase of the
project has GBA of 20,000 square
meters and GLA of 15,700 square
meters.
At the moment, FASHION
HOUSE Outlet Centre Moscow
is home to more than 60 brands,
including Puma, Adidas, US Polo,
Cacharel, Calzedonia, Ochnik and
Samsonite.
The number of business partners
interested in opening stores at
FASHION HOUSE Outlet Centre
Moscow is significant and constantly growing. During the past 12
months we have more than tripled
the number of stores. Just this week
the first outlet of VF Corporation
22
of operation, its Outlet Centre Moscow
has seen shoppers spend more time and
money than in traditional shopping centers.
in Russia has been opened in our
centre. One of the biggest brand
owners in the world decided to start
their outlet business in Russia with
FASHION HOUSE.
What is the foot traffic of Fashion
House in Russia? How does it
change on a seasonal basis?
Traffic differentiates
outlets from traditional
shopping malls.
Customers spend much
more time and money
during their visit to
an outlet centre.
B.O’R: Current traffic in FASHION
HOUSE Outlet Centre Moscow is
about 2.5 million visitors per year,
which meets our expectations
towards the first year of operations.
As our experience in other markets
shows, we can expect 6 million
visitors per year after three years
of operation and after opening all
three phases of the scheme.
At the moment, 60 per cent
of customers come to FASHION
HOUSE Outlet Centre from Monday
to Friday, while 40 per cent come
from Friday afternoon to Sunday.
However, this proportion may
change in the course of three years,
stabilizing at 50 per cent of traffic
on weekdays and 50 per cent during the weekends.
It is important to remember that
traffic is one of the aspects that
differentiates outlet centers from
traditional shopping malls, making
these two incomparable. Customers
spend much more time and money
during their visit to an outlet centre.
For example in FASHION HOUSE
Moscow spending per head is 85
per cent higher than we expected
it to be. While talking about differences, other aspects should be
mentioned as well. Outlet centers
offer fashion and home ware at discounts ranging from 30 per cent to
90 per cent less than original prices
and they sell previous seasons, overruns, made for outlet and bought for
outlet collections not regular ones.
Moreover, they offer less GLA than
shopping centers and are located
on the edge of towns or out of towns.
Could you distinguish preferences in clothes, fashion trends of
your Russian clients? What items
and price segment are the most
popular among them?
B.O’R: We have studied the market
carefully and what we know for
certain is that Russians have a high
Q4 2014
MARKET UPDATE
brand consciousness and are very
demanding customers. On average
they are willing to spend a higher percentage of their income on
clothes and accessories than their
counterparts in Western Europe.
When shopping they look for
quality products from well-known
brands therefore we decided to create the “Red Carpet Alley”, special
part of the scheme dedicated to
the most prestigious international
and domestic fashion brands, like
Versace, Blumarine, Trussardi and
Gerald Durrel.
three key factors that distinguish
FASHION HOUSE in the market.
We see online retail
changing the face of
traditional shopping
centers but creating
greater opportunity
for outlet centers.
How do you see the future of
physical stores in Russia and in
the rest of the world? How do
prospects of physical stores differ in developed countries and
emerging economies?
FASHION HOUSE Outlet Centre
Moscow
FASHION HOUSE GROUP
B.O’R: FASHION HOUSE Outlet
Centre Moscow is the first fully
enclosed and professionally managed outlet centre in Russia. We
have been managing outlet centers
since 2004 and we are the only
outlet-dedicated team of experts
operating in Russia, bringing to the
market over 20 year of experience
and success The group of specialists in development, management
and marketing of outlet centers,
impressive architectural theme and
the best shopping experience are
FASHION HOUSE GROUP
Could you name your closest
competitors on the Russian market? How fierce is the competition from the part of online
stores?
B.O’R: I foresee the bright future
for physical stores, especially in
the fashion industry. Latest data
from the International Civil Service
Commission (ICSC) show that despite
significant growth of the Internet as a
sales channel, 87 per cent of sales
are being made at traditional stores.
From our point of view, FASHION
HOUSE creates a leisure experience
that combines famous brands with
half price every single day of the year.
We deal with real people, real brands
and real products. We see online
retail significantly changing the face
of traditional shopping centers but at
the same time creating greater opportunity for outlet centers. At present we
have the click and collect offers and
we can see the service evolving into
click and deliver.
themoscowtimes.com/realestate
23
IN THE REGIONS
Q4 2014
Russians would Migrate to the
Countryside if Lifestyle Matched Cities
By Marina Selina
Twenty-five million Russians might move from cities to the countryside if offered the same income
and infrastructure. While these conditions cannot be met in Russia at the moment, the government
can encourage urban dwellers to move to rural communities, according to the study ‘Motives,
Conditions and Consequences of Migration from the Cities to the Countryside in Russia,’ by
Maria Neuvazhaeva, masters’ graduate of the Higher School of Economics’ Faculty of Sociology.
24
MARK GAY
I
n the 2000s, Russia experienced the phenomenon of
counterurbanisation,
i.e.
migration from urban to rural
areas. There have been few
studies of this trend in Russia, and
no clear explanation is available of
why some people chose to abandon
their urban lifestyles and move to the
countryside. But in many other countries this research topic is quite popular, said Maria Neuvazhaeva at a
seminar hosted by the Laboratory
for Studies in Economic Sociology
(LSES).
She found that Russians may have
a variety of reasons for moving from
cities to villages, including the economic and other challenges of living
in a big city. Their motives are usually
different from those in other countries, where a change in values and
a desire for self-actualization in rural
life is often the main reason for such
migration.
Neuvazhaeva’s
research*
involved a series of surveys with a
large number of respondents.
First, the researchers interviewed
220 experts (195 regional and 25
federal experts), including government officials at various levels, CEOs
of agricultural enterprises, and academics and journalists with expertise
in agriculture.
Second, they used a representa-
Individuals who move to the
Russian countryside often have
a particular motive, like the
chef and farmer Jay Close who
makes cheese near the village of
Moshnitsy is near Solnechnogorsk
in the Moscow Region.
as one with a population of no more
than 3,000 to 4,000 people. The
interviews focused in particular on
the settlers’ own assessment of their
new situation and whether and how
they have influenced the rural community’s development.
Urban Colonizers
tive nationwide sample of respondents to survey 1,000 urban residents on their thoughts about potential relocation to the countryside.
The qualitative part of research
included interviews with 13 men
and 17 women who had moved
from urban to rural settlements in
13 Russian regions, including
Altai, Trans-Baikalia, Irkutsk, and
Khakassia.
A rural settlement was defined
A
ccording to the 2010 National
Census, 26 per cent of Russia’s
population (representing more than
37 million people) lives in 154 thousand rural settlements, of which 40
per cent have less than ten residents.
Some 40 years ago, other countries — such as the U.S. — witnessed
the beginning of couterurbanisation,
i.e. people migrating from the cities
to the countryside. This fairly unexpected move caused a lot of debate
in the academic community. While
some said that counterurbanisation
was a good thing, others argued that
urban to rural migrants ‘colonize’ the
countryside, raising real estate prices and hiring villagers as servants.
Nevertheless, many Western
researchers into counterurbanisation
insist that it has a positive impact on
the socio-economic development of
rural areas and they emphasize the
importance of the economic, social,
and human capital that new rural
settlers bring. “Migrants from cities
serve as a link between the rural and
the urban, the local and the global, by generating new experience,
bringing in capital, understanding
the rural residents’ real needs, and
having a realistic assessment of
resources available in rural areas,”
says Neuvazhaeva. “In addition,
migration serves a distributive function and helps to level out demographic differences between rural
and urban populations.”
The main motive behind counterurbanisation in the West was a change
in values. “Counterurbanisation
should be understood not only as a
physical relocation from cities to villages, but as a change in how people
perceive themselves and their choices,” the study says with reference to
Western literature on the subject.
It was different in Russia. When
counterurbanisation emerged in the
West in the 1970s, few people in
the USSR ever considered relocation to the countryside. The situation
changed in the 1990s.
Traditionally, push and pull factors are used to explain why people
choose to migrate. In the case of
urban to rural migration, economic
constraints may be a push factor,
while perceived new opportunities
may be a pull factor. The researchers’
assumption was that after the collapse of the USSR, push factors such
as non-payment of wages, unemployment, and others forced people
to move to the countryside. However
researchers found that most new rural
settlers in the nineties were immigrants
from other CIS countries who would
spend some time living in the countryside before moving to big Russian
cities — their ultimate destination.
But the counterurbanisation that
occurred in in Russia in the 2000s
is a real and as yet unresearched
phenomenon.
The Economic Crisis vs
Values
R
ussians who have moved from
the city to the countryside are relatively few in number, and scattered
over the country’s territory; according to the study’s author, this group
is rarely captured by large quantitative surveys. Therefore, the researchers compiled their own database,
including qualitative and quantitative
data, for subsequent analysis. The
study found that most rural settlers
who agreed to be interviewed had
Project Preobrazhensky is a development of low-rise, economy housing by Kortros in the suburbs of
provincial Yavoslavl.
moved to the countryside after 2009
due to the ‘push effect’ of the economic crisis. They were definitely not
‘the urban poor’, as virtually all had
university degrees and considered
themselves middle class.
But the economic crisis was not
the only reason behind this wave
of migration. The researchers identified four groups of urban to rural
migrants: pensioners, governmentsupported settlers, runaways, and
seekers of better quality of life.
Russian pensioners were driven
to the countryside by dwindling
incomes and an inability to maintain
their lifestyles. Neuvazhaeva notes
that unlike Western pensioners, they
cannot be expected to contribute to
rural development, e.g. by taking up
farming or volunteering.
Some people had moved to the
countryside with support from state
resettlement programs or had taken
subsidized loans to buy housing or
set up agricultural businesses in rural
areas. The study describes them as
“those who do not choose a place to
live; rather, the place chooses them.”
Runaways are a special group.
These are often successful people
who are tired of urban life. They associate the city with idleness, psychological discomfort, fatigue, stressful
and boring chores, a lack of meaning, and excessive consumption.
They move when they realize that
the big city and their urban lifestyle
run counter to their goals and values.
They are willing to sacrifice wealth
for personal harmony. Neuvazhaeva
refers to the Anastasians, a Russian
movement combining environmental
and religious aspects, as an extreme
example of city runaways.
Yet another type of resettlers are
those who hope to find better quality of life in the countryside, such as
organic food, not having to commute long distances, genuine social
contacts, and more quality time with
their family.
Neuvazhaeva believes that
Russian migrants from urban to rural
areas are driven primarily by selfish motives. The new villagers look
forward to enjoying organic food,
clean air, and quiet surroundings,
but have no intention of contributing
to rural development and thus give
back nothing to their new home.
According to Neuvazhaeva, this
attitude has something to do with the
fact that rural residents still depend
on the city for many basic things
— nearly all respondents buy food,
construction materials, seedlings,
livestock feed, and much more in
the city.
Good Living Conditions
Will Bring Crowds to Rural
Areas
T
he full list of requirements mentioned by 29 per cent of respondents is quite unrealistic and includes
full government support of reloca-
IN THE REGIONS
tion, such as compensation, subsidies, discounts on buying or renting
a home, and tax breaks, as well as
the ability to maintain the same salary level and enjoy the same type of
infrastructure as in the city. According
to Neuvazhaeva, if the above conditions were met, seven million Russians
would be prepared to relocate to
rural areas and to find employment
in the agricultural sector, but less than
one million would agree to relocate
if agricultural facilities remain outdated, and while rural salaries and
infrastructure stay far below urban
standards.
The interviewed experts are skeptical of the idea of using incentives
to populate rural areas and believe
that other strategies should be used
to maintain agricultural lands and
support rural businesses. They see
newcomers from the city only as seasonal workers and non-agricultural
sector employees.
The study suggests that counterurbanisation in Russia is in many ways
different from that in Western countries. The study’s author believes,
however, that rural residents wishing
to move to the countryside should be
supported, because they could help
trigger the process of rural modernization.
*The project was implemented
under the guidance of HSE Professor
Svetlana Barsukova and supported
by a presidential grant from the
Institute of Public Projects. More
information at [email protected].
VYACHESLAV DODONOV
KORTROS
Q4 2014
Borovsk in Kaluga Oblast, population 12,000. According to the 2010
census, 26 per cent of Russia’s
population lives in rural settlements.
themoscowtimes.com/realestate
25
INNOVATION
Q4 2014
Technology offers Lifetime
Savings on Operating Costs
Every building has something to gain from cost-saving technology but hotels can benefit more than most. Innovations now
monitor how guests and activities fluctuate throughout the day.
26
SCHNEIDER ELECTRIC
T
echnology can help
building managers to
improve the operational
efficiency, and reduce
labor and maintenance
costs in ways that are dynamic and
which do more than just reduce energy expenditure.
“We can give an operator advance warning of potential
failures. Automated check-ins can
reduce staff costs. Software and
servers can be cloud hosted,” said
Robert Kempton, hotel segment
director, western and central Europe,
Schneider Electric.
Speaking at the Russia and CIS
Hotel Investment Conference in
Moscow in October, Kempton said
it was important to demonstrate the
impact of technology on return on
investment (ROI). This meant that
specialists like Schneider were keen
to get involved at the start of projects.
It is generally developers who
plan to hold an asset for, say, 10
or 15 years, who show interest in
energy and labor saving technology.
“We do a lot of research and
development,” Kempton said. “Hotel
developers listen when we advise
them that if you spend an extra 20 or
30 euros per room key, up front, you
can potentially save that same sum
in every future year. We can provide
the evidence that supports that ROI.
However it is also true that every
project is different and it is difficult to
extrapolate from one project and use
that as a business case for another.”
Where there is only short-term
interest on the part of property developers that often leads to a delay
in investment. Technology is one of
the first areas that suffers, according
to Gottfried Hart, senior director,
energy optimization, The Rezidor
Hotel Group.
“If you show the financial benefit
of an upgrade and if you can prove
it with example projects, and show
that the performance of the building
per kilowatt hour per square meter
benefits over the long term that not
only reduces the operating costs but
also increases the value of the building if you want to sell it. That is a win
win situation.”
For example, if you know how
long or often equipment or rooms
have been used you can change
filters only when needed. You can
get information about defective light
bulbs or information about how often
something breaks down. This can
identify where a problem lies – for
example it may not be the bulb but
the electrical circuit. You may identify
Energy Management begins with
smart keys and room controllers
like those produced by Schneider
Electric. The company claims they
soon pay for themselves.
Guests can choose
a hotel that has less
of a carbon footprint
because that fits their
lifestyle and interests.
By Mark Gay
a failure more quickly, or even before
it happens, which provides a better
service to the customer, said Hart.
The sooner you install smart keys
to the rooms, the sooner you start
saving money. It is a three or four
year payback if you retrofit savings
measures like this, but if you do it at
the beginning, the payback is even
faster.
The importance of planning from
the outset is illustrated by something
as seemingly low-tech as carpets or
paint. Commercial buildings increasingly use anti-vandal wall coverings
and paints, something that was considered innovative in Russia just a few
years ago.
Carpets are a huge cost developer should decide at the beginning
how much they intend to spend. The
owner who is amortizing a 200room hotel, should wonder what he
would do with 25 tons of carpet if
he needs to change it every seven
years rather than every 10 years.
Development costs are a small percentage of the overall lifecycle costs
of a building. Software allows managers to get better information about
how long it takes to clean carpet.
Any failure, a bulb, a touch screen
or a mirror – if you know that you
are fixing it again and again then the
fault is probably lies elsewhere.
Heating ventilating and air conditioning systems are among the
most expensive costs for hotels in
Moscow. Moving and heating air is
about 40 to 50 per cent of electricity
costs in a hotel, and lighting is about
15 to 20 per cent, though with LED
technology that is being cut by 10
to 15 per cent a year, Hart said. Hot
water preparation is another 15 per
cent if you have a large kitchen and
several restaurants, and a big spa
can be the same again.
is a mutual benefit between what
guests expect and the savings that
hotels can achieve.
However the approach to sustainability is not being adopted at
the same rate in all countries.
Some markets are more
advanced. If you go to a big city in
China, in Japan or in the U.S. technology is much more accepted and
the local communities have a greater
interest in living a healthy environment,” said Hart.
Some hotels operated by Rezidor
have BREEAM certificates but that
is not down to the hotel operator but rather the buildings’ owners.
In Abu Dhabi, in New York City,
in Germany or London, communities increasingly require that certain
sized buildings should be labeled
as green. “We don’t see that in this
market yet. What we do internally is
to save 25 per cent of energy within
five years but also to improve the
overall sustainable performance of
the building with our design standards,” Hart added.
The move towards sustainability is financially driven in western
Europe as corporate clients choose
hotels that have a sustainability
agenda. The other driver is energy
prices and the fact that many new
developments are mixed. These
include offices that can get higher
rents, can earn income more quickly, and have a higher resale value
Kempton, of Schneider Electric,
said equipment should be subtle and
not bother guests. “We call this the
guest room energy dilemma. If you
are charging 500 euros to stay in
a hotel how do you tell people that
they have to turn the light off? So we
have to be smart about it.”
Open source software is one reason that technology is generating better savings. In the last century it was
a struggle getting systems to talk to
each other. Vendors actively prevented their system talking to other vendor’s systems, said Hart. “Now more
vendors use open wireless protocols,
we have more commonly accepted
protocols and most of the technology
vendors use them, such as lighting
manufacturers and building automation suppliers. We have better software to bring all this together.” Apps
can also offer guests a more flexible
and personalized experience.
Hardware is even more important
at the first stage: the cabling to serve
technology in lobbies, ballrooms
and guest rooms so that it can meet
changing future demands.
As for energy efficiency, all hotel
operators now have energy efficiency programs in place because there
The owner of a 200-room hotel
should wonder what he will do
with 25 tonnes of carpet if he
needs to change it every seven
years rather than every 10 years.
NIHOCOLAMEAS / WIKIMEDIA
Historically Russian investors
have not spent much time worrying
about energy costs but they are now
increasing, by above inflation, and
are catching up with other regions.
Even if energy is half of the cost
that building owners must pay in
mature markets, energy saving technology still offers a financial advantage. At most, it means the technology
will take two times as long to generate
a return on investment, but that may
simply mean two years instead of one.
Guests, as well as developers,
are driving the demand for energy
saving technology. Corporate clients frequently ask information abut
how much energy a hotel is using
and hotels now advertise it. In some
markets if a hotel wants to get on a
tender list it has to offer certain levels
of sustainability. Carbon offsets for
meetings are very popular in the U.S.
and western Europe.
“If we educate our employees
and the guests have a choice, they
can choose a hotel that has less of
a carbon footprint because that fits
their lifestyle and their interests and
they match the hotels to their environment,” said Rezidor’s Hart.
For a major hotel operator energy consumption may be its biggest
controllable expense, depending of
course on their climate, and even St.
Petersburg is different to Moscow.
Hart estimates the costs at from
300,000 euros to a million euros per
year in energy. “It ranges dramatically in terms of the features you have
in the hotel, if you have a spa and
laundry, for example.”
Technology to save energy makes
frequent use of Wi-Fi. There are sensors for window and door contacts,
even door locks are smart locks that
tell the temperature controller in the
room whether the guest is coming
or going. Demand ventilation brings
the energy to the room when the
guest is there. When the number of
people attending a conference rises
of declines, the amount of energy can
respond, by measuring the number of
wireless devices being used in a room.
INNOVATION
when they invest in a green building.
Energy savings and technology can
help to make a development more
future proof.
Kevin Underwood, global leader
of leisure and culture, AECOM, said
some energy saving measures come
free of cost. He cited a master plan
in Doha, where temperatures get up
to 55 centigrade. “The first thing we
look at is the orientation and the wind
direction. This information is for free.
It costs nothing to build the building
in one direction rather than the other.
Then you get into the fabric, and
in Doha they have for many years
forgotten their past principles and
they are building glass houses in the
desert. This is totally wrong because
it increases energy costs dramatically
so we are pushing the architects to
include a certain amount of solid to
glass. This can be built into the general design.”
The conclusion is that the developer should know what he wants,
give a strong brief and select not only
the designer but also the vendors
at an early stage. The technology
should suit the region and climate.
This can give information about
future energy costs so that there are
no nasty surprises.
If it comes down to a price point,
Kempton said, they should understand the implications of what they
are cutting out so that it does not turn
out to be a false economy.
ROBERT.HARKER/ WIKIMEDIA
Q4 2014
Underfloor cable runs are best
installed at an early stage.
themoscowtimes.com/realestate
27
LEGAL NOTE
Q4 2014
Changes to Land Law may help
to Bring Life to a Slow Market
By Rustam Aliev, Partner, Real Estate and Construction, Goltsblat BLP
Legislators seem to be pressing developers and landowners into activity by creating disincentives to keeping land off the market in the hope of finding a more attractive buyer.
Proposed legal changes aim to govern public land allocation more precisely. The result
could be positive for the market and bring more transparency to developers’ operations.
T
here has been a lot of
press coverage and
commentary on the
impact of events on
businesses and economic sectors and we are certainly
seeing a lot of hype around real
estate. Yet most of the press coverage tends to be negative or, at best,
tight-lipped.
Indeed, Russia can hardly be
called the most obvious or safest
destination right now for the average foreign investor. However, from
another angle, the real estate market
is still demonstrating some activity.
Here and there, new projects are
being launched, deals are being
closed and new players emerging
(few though they be!).
This article sums up certain rather
obvious factors affecting Russian real
estate market players and describes
the type of projects which, in my
view, remain sought-after or promising, and perhaps gives an explanation as to why.
As a lawyer, I am bound to start
with legal developments affecting
real estate; particularly since there
have been so many. There have
been and will continue to be both
large and massive reshuffles of laws
and specific, targeted changes.
The altered Civil Code, with
28
amendments already in place this
autumn, and the planned changes
to the land law coming next year are
good examples of major change.
The latter is the largest change since
the Land Code was passed back
in 2001. Proposed legal developments seek to govern public land
allocation and use, more precisely
and more strictly. It is an attempt
on the part of legislators to prompt
certain activity by developers and
landowners in order to counteract
land being deliberately put on hold
in the hope of finding an attractive
buyer. These amendments might,
indeed, have a positive effect on the
market, bringing more transparency
to developers’ operations. Yet there
are questions that need asking, both
about the draft law as it stands and
the missing subordinate legislation.
Of specific interest are alterations to rules about the investment
partnership that may now be used
in real estate. In fact, a new format
has emerged for making investments
and establishing joint ventures in real
estate. This is somewhat similar to
a limited partnership in English law
(distinguishing between a general
partner in control of a business and a
limited partner making an investment
only). This is not, of course, a comparable substitute for classic tools,
yet we can only rejoice at seeing the
legislator’s continued search for new
types of joint venture.
There are also notable changes
in tax law. First and foremost, the Tax
Code is to be amended in line with
the current deoffshorization policy.
Most deals in real estate are, of
course, effected at the corporate
level, through transactions involving
shares in foreign companies indirectly holding property in Russia.
So it is no surprise that the news of
the planned tightening of the screws
related to the transfer of real estate
rights with minimal tax implications
(or none, depending on the jurisdiction) has promoted some market
players to undertake such transactions this year.
Yet this coin has its flip side,
as many market players have suspended their projects, mostly those
involving a planned exit after 2015,
since they cannot clearly see the
future rules of the game. The projected amendments are thus certain to
impact materially upon the level and
nature of the investor and developer
market behaviour next year.
The idle (and probably the overly
wary!) are the only ones who have
not commented on the negative
impact of the sanctions and tensions
in foreign affairs on the real estate
Q4 2014
If it is a quality facility
that has been developed efficiently, it will
be attractive to banks
and investors and,
ultimately, to tenants.
Europe and not in Russia. To corroborate, one of the most active
German banks financing real estate
projects had to get rid of most of the
assets in its portfolio after 2008,
even though it was virtually the most
reliable region for credit returns.
Yet again today we are hearing news about another banking
crisis in Europe. Now it is all about
Italian banks. Given all this, it is
hard to predict whether the liquidity dynamics in the Russian banking
sector would have been any different, had no sanctions been imposed
on Russia.
Moreover, there are other fundamental economic factors affecting the market beside the sanctions.
Although all those sanctions have
been imposed on Russia, some companies in the fast moving consumer
goods sector, including U.S. ones,
are still extensively developing their
business here. Should the FMCG
market growth slow down, which
cannot be totally ruled out, this will
surely affect real estate, too.
In this case what projects are
still up-and-coming and what is
driving market players? Some have
good reason to see opportunities
for business development in the current situation. Attractive platforms
are emerging, upon which demand
is not as excessive as it used to be.
So there is time to consider solutions
thoroughly and carefully.
Everyone now says that retail and
warehouse property have the best
prospects, noting that warehousing
evolves largely due to development
of trade. Yet we are seeing many
new developments in the office sector, too, albeit that vacant space is
reported to have surged to over 20
per cent. I believe the prospects for
a real estate property depend on its
quality rather than its type. If it is a
quality facility that has been developed efficiently, it will be attractive
to banks and investors and, ultimately, to tenants.
I do not, of course, expect a lot
of new market players to appear
on the Russian commercial real
estate market, though I wish to be
proven wrong! Even so, I believe
that, with the squeeze still on, market players can reinvent themselves
and understand their future development strategy. Profiteers and
non-professional market players
will have to exit the market or slow
down. I see this situation giving
rise, in the long term, to commercial
real estate of better quality and a
more mature market.
A 1760s map of Moscow Kremlin,
Kitay-gorod and Neglinnaya river
valley that would later become
central squares. From ‘Architectural
Monuments of Moscow’ by
Zamoskvoreche. Public domain.
WIKIMEDIA COMMONS
market. Indeed, the adverse effects
are obvious and many have already
suffered from them directly. Yet the
long-term implications are still a
fog. Even if the sanctions were lifted
immediately, this would not guarantee a sudden inflow of foreign capital. It might even be presumed that
neither Russia nor the West should
expect such a capital influx as we all
would still need some time to understand the world’s new paradigm.
Nevertheless, the immediate
effect of sanctions on the real estate
market should not be overstated.
This market is, per se, inert and
incapable of responding quickly. To
illustrate, it is not completely true that
shrinking bank liquidity, which followed the latest set of sanctions, has
inhibited development projects, with
the latter being largely dependent
on project finance leveraged by the
banks.
Certain projects have suffered
set-backs, it’s fair to say, but in terms
of less favorable conditions rather
than a lack of finance. Besides, this
also means that developers and
other market players must learn to
perform better. Top, popular and
one-of-a-kind projects are still very
attractive for financing banks that
are interested in their own business
development. It might be more difficult now to balance borrowers’
expectations and banks’ requirements, yet this is the way towards
quality property developments,
which are universally more attractive
to both future tenants and buyers
and can potentially enjoy sufficient
demand in the market.
Available banking liquidity is not
the only lever for sustaining real
estate market activity in the face of
sanctions. There are other triggers
impacting on banking. Just think of
the slackening activity of foreign
banks on the Russian market in recent
years — well before the sanctions
were imposed. Against this background, big Russian bank financing
of real estate projects flourished. This
was mostly due to the challenges in
LEGAL NOTE
themoscowtimes.com/realestate
29
MONEY MATTERS Q4 2014
Online Advertising cannot replace
the Specialist Skills of an Agent
By Stephen Inscoe, founder and CEO, Idinaidi.ru and Komesto.ru.
The founder of online listings sites says that internet advertising cannot replace the role of an agent or consultant — any more than online retailing or remote working can replace physical retail stores and corporate offices.
T
he impact on our lives
of the Internet is hard
to overestimate. Several
businesses including
post, newspapers, music
publishing, and bookshops have
been redefined by the Internet. The
speed of the creation of data and
its availability, as well as the speed
of investment in new Internet companies, seems to guarantee major
change in many more industries.
In just the last 10 years, the number of internet users worldwide has
trebled — growing four-and-a-half
times in Russia. There are 86 million
people online in Russia today, more
than any other European country.
The Internet has spread through age
and income groups, and is quickly
evolving from computers to tablets
and smartphones. The Internet’s
technology, reach, growth and
speed of evolution are all unprecedented.
So what is the effect on real
estate and the real estate business?
Will retail real estate be replaced
by e-commerce and logistics? (Or
as Shaun Parker asks in The Social
Network “Do you want to buy a
Tower Records”?). Will offices be
replaced by remote work? Will consultants be replaced by listing portals? And what effect will the Internet
have on the work of professionals
in real estate? Especially as some
markets are now reporting 80 to 90
30
Advertising is just
a small part of what
agents do and it is
never a silver bullet for
developers to replace
agents.
per cent of client leads come through
online marketing.
Since the beginning of story
telling, humans have always been
attracted by extremes: monster and
hero; voyage and return; comedy
and tragedy. Life and economics
fit less well into set plots, and are
much less black and white. So the
short answers are: the Internet makes
real estate and the real estate business more transparent; retail will not
be replaced by e-commerce; and
offices will not be replaced by remote
working. Let’s come back to the direct
effect of the Internet on property.
The Internet changes the real
estate business, and specifically marketing, communication, and data
availability and analysis, and not just
for real estate agents, but also for all
the related companies, of architects,
constructors, fit-out, space-planners,
lawyers and so on. The Internet
makes both marketing and client
acquisition more efficient.
Listing portals cannot replace
agents, any more than newspaper
classifieds and professional magazines did. The 156 year-old Estates
Gazette in the UK has developer
and agent advertising, as well as
detailed market commentary, analysis and legal updates. Even online
today, it is an integral part of a very
strong profession, not a competitor to
the agents. Real estate listing portals
are very efficient marketing tools,
available 24/7, constantly updated,
and free to access. But they are only
marketing tools. They are not brokers
or consultants, advocates or negotiators. They don’t have the consultants’ range of specialties, or depth
of experience and network behind
each specialty. This is also why the
main property occupiers often mandate consultants in their search.
Listing portals provide marketing
leads. They provide contacts, but
can’t close transactions, because
property will never be transformed
into an ‘add to basket’ e-commerce
solution. Advertising, whether online
or offline, is just a small part of what
agents do, and can never be a silver bullet for developers to replace
agents, however efficient online
advertising becomes. And any portal
trying to exclude agents would be
doomed to overselling what it can
deliver. Advertising is visibility. It is
brand, and proposing choices in the
best context. It is not sales. That is
the job of brokers. What portals can
do is provide qualified leads. If a
potential client responds to a listing
following search, with location, size
and price all visible, then that call to
the agent will be significantly more
useful as a first contact.
It may at first regard seem logical for developers to want to avoid
consultants’ fees. But there is no easy
part of a developer’s job, from finding projects, to investor and bank
Q4 2014 MONEY MATTERS
Internet users and penetration in Russia (2011–2016)
Source: eMarketer (2013)
2011
62
2012
67
2013
73.8
2014
78.8
82.7
2015
86.3
2016
launched 1 February this year, and
has over 100,000 commercial property listings in 53 cities. The goal
of both platforms is to be the most
efficient online advertising resources,
for agents and developers, as well as
make transparent the added value of
each part of the real estate profession. Both Idinaidi.ru and Komesto.
ru are built on a detailed research of
real estate portals around the world,
and how they generate leads and
work with professionals.
The heart of any advertising
medium is the audience. The listing
portals have an audience and ongoing investment that no consultant or
professional site will ever have, and
are great places for professionals to
show what they can do. The audience is quickly moving online, and
online advertising in Russia increased
over 400 per cent between 2008
and 2013, and was already up 20
per cent in the first six months of this
year. This is a great opportunity for
professionals to reach this qualified
and targeted audience more efficiently than ever before.
KOMESTO.RU
financing and market research,
building permit, negotiating general
contracts, monitoring construction
and delivering. Adding an agent’s
job on top of this is an illogical distraction, even if the developer has
great tenant and investor contacts. It
is no coincidence that the strongest
listing portals, for example in the US,
are in predominantly agent markets.
Developers know that their time is
better spent on finding and financing
new projects, than saving money on
agent’s fees, and they know that with
the consultants’ advice and network
they can have better conceived and
more successful projects.
My perspective of the real estate
market comes from working for one
of the most successful international
developers HRO Group, who always
mandated agents on each project,
just as we instructed architects, M&E
consultants, engineers and other specialists. We had great contacts with
the main occupiers and investors, as
well as in-house marketing teams for
each project, but relied on the agents
to lease the buildings, as well as to be
consciously aware of tenant requirements in designing and planning new
projects, providing market research
and looking for new projects. This
deep relationship with the agents was
a key part of the company’s success
and speed of work.
My perspective of the market
also comes as founder of Idinaidi.
ru and Komesto.ru. Idinaidi.ru was
launched 1 February 2013, and
20 months later has over 1 million residential listings in 151 cities
throughout Russia. Komesto.ru was
This movement online can give
a great advantage to companies
who start earlier, and work faster
and better, so it is up to the existing champions to guard their position in the market, by communicating
online, just as they are doing offline.
Of course the consultants and other
real estate professionals should have
websites, mobile applications, blogs,
online videos and social media strategies. But they should also leverage
the audience of listing portals to
maximize their online investment.
The technology behind the
Internet can bring a lot more innovation, beyond simple listing. Several
companies are working on augmented reality, virtual reality, 360
degree and 3D visits. But all of these
technologies will inevitably come
back to qualified lead generation,
and advertising, for example native
advertising is a clear unexploited
resource in online real estate advertising. There is also an industry discussion about providing only the
most basic address, size and price
information, to generate more and
faster qualified contacts to agents.
Back to the direct effect of the
Internet on property. New project
architecture is deliberately modern
and social. Offices are much more
efficient places to work for most jobs,
and the best retail centers are much
more efficient spaces to shop and
sell, where customers can look, touch
and try. Otherwise, there is no logic
to the discounts that every online
retailer has to offer. E-commerce
platforms have more choice, better
comparison, free delivery, and even
cash on delivery, and still have to
offer a cheaper price just to compete.
E-commerce is first built on losses,
and then thin margins, compared
with the much higher margins of
physical retailers. E-commerce can’t
and won’t replace retail real estate,
but only add one more option, as
well as new demand for logistics.
In the same way, as long as
offices are the most efficient places to
meet, collaborate and produce work,
remote working will be an addition
not a threat to offices. However,
both retail and office tenants will
push the conceptions, quality and
cost efficiency of new projects, at
least mindful of online competition,
and this in turn will generate work for
consultants.
“All is change”, and change is
what brought me to Russia, in the
ambitions of my friends in development, agency and many other businesses. Change is what makes us
think of what we can do, and what
we can do better. The best part of
the Internet is that it forces us to think
about change, not in terms of technology, but in terms of serving clients.
And it opens new opportunities.
When I first came to Russia, at
the start of 1998, there was less than
1 million square meters of offices
in Moscow. Now there is over 16
million square meters. There were a
handful of new retail centers, and
now over 3.8 million square meters
in Moscow, and 16.4 million square
meters in Russia. This growth will
inevitably continue. The Russian
economy is turning its focus from the
low-growth European economies, to
the high-growth Asian economies.
Corporate and consumer demand
will accelerate again, and will drive
commercial and residential real
estate development. And just as the
Internet is adding more dimensions in
real estate through e-commerce and
remote working, so online marketing
and portals will be seen as tools in
accelerating this future.
themoscowtimes.com/realestate
31
APPOINTMENTS
Q4 2014
Federation. One challenge will
be to oversee the final stage of
the 20-million-euro renovation
and repositioning of the Hotel
Baltschug Kempinski.
COO. Between the two of them,
the men have more than 20
years’ experience in the region.
GUERNSEY FINANCE
Dominic Wheatley has been
CBRE
Victoria Danchenko has been
BALTSCHUG KEMPINSKI
MOSCOW
Oliver Eller has been appoint-
ed General Manager of Hotel
Baltschug Kempinski Moscow
and Kempinski Area Director of
Russia.
As a German national he
began his career with a traditional apprenticeship in hotel
management at the Maritim
Staatsbadhotel, Bad Salzuflen.
He also studied at the Cornell
School of Hotel Administration
in Ithaca, New York. After
working in Miami, Buenos Aires
and Bahrain he began working
for Ritz-Carlton, and worked
on the opening of properties
in Egypt, New Orleans and
Atlanta. He held management
positions in Germany and then
moved to Moscow where he
opened the Ritz-Carlton Hotel
in 2007.
He joined the Kempinski
hotel group in 2010, as managing director of the Hotel
Adlon Kempinski in Berlin.
He returned to Russia to take
not only the reins at the Hotel
Baltschug Kempinski but also
to supervise other Kempinski
properties in the Russian
32
appointed a Director in the
Global Corporate Services
Department of CBRE. She will
reinforce its account-management platform working with the
platform’s managers in London.
She has 10 years’ professional experience in the commercial real estate market. She
started her career in JSC CITY
(the management company
for the Moscow-City projects)
and Mosinveststroy. Prior to
CBRE she worked at Jones
Lang LaSalle for more than nine
years starting as a Consultant in
the Office Agency Department.
In 2008 she continued her
career with JLL in the tenant
Representation Department
where, in the role of Associate
Director, she was responsible
for strategic consulting to large
Russian and international clients
and closed a number of lease
and purchase deals. She participated in transactions totalling
more than 200,000 square
meters and involving companies
like Pfizer, IBM, Deutsche Bank,
Alcatel- Lucent, Cisco, Morgan
Stanley and SAP.
She graduated from Moscow
State University of International
Relations with specialization
in International Relations. She
is also a certified specialist
of CCIM Institute (Certified
Commercial Investment
Member).
DELOITTE CIS
Ian Colebourne has been
appointed the new Managing
Partner of Deloitte CIS and
will take up the role in January
2015. As CEO of CIS for
Deloitte, he will be in charge of
more than 2,5000 practitioners
in 18 offices spread across 11
countries. His main role will b
to strengthen the position of
the firm in Russia and the CIS
by developing and revising its
strategy.
He succeeds David Owen
who completed his term in the
role and returns to Deloitte UK.
Quentin O’Toole is appointed
Deputy CEO. He currently
works as CIS Audit Leader and
appointed as Chief Executive
of Guernsey Finance from
December. He has more than
25 years’ experience in the
international financial services market in the UK and
Guernsey, most recently as
Managing Director of Willis
Management (Guernsey)
Limited and Chief Marketing
Officer of Willis’ international
insurance management busi-
nesses. He also served as
Chairman of the Guernsey
International Business
Association (GIBA) the representative body of the financial
services industry in Guernsey,
from 2011 to 2013. He replaces
Fiona Le Poidevin, whose resignation was announced in July.
Guernsey Finance is a joint
collaboration between the
Commerce and Employment
Department on behalf of the
States of Guernsey and GIBA
on behalf of the Island’s finance
industries.
APPOINTMENTS
Q4 2014
JLL
Andrey Amosov has been
appointed Head of the JLL St.
Petersburg office. He joined
JLL, Russia & CIS from Raven
Russia.
He has a 13-year career; the
last eight years in logistics and
commercial real estate. He spent
five years at Raven Russia, in the
development and maintenance
of the company’s key clients
as well as in commercial leasing. He was closely involved in
leasing Raven Russia’s major
projects, such as the Shushary
and Pulkovo logistics parks.
He has worked for JLL before:
in 2007-2009 he headed
the Warehouse and Industrial
department in the firm’s St.
Petersburg office.
He graduated in 1999
from the St. Petersburg State
University of Aerospace
Instrumentation with honors. In
2010 he received his second
degree from the Economics
Faculty of the St. Petersburg
State University.
KNIGHT FRANK
Sergey Gipsh has been
appointed managing partner
of the Moscow office of Knight
34
corporate finance services to
organizations operating in Russia
and the CIS. He has worked as
a property investment consultant
for eight years and joined Knight
Frank in 2007. He graduated
from Aarhus Business School, in
Denmark, majoring in corporate
finance and international business.
Kyrill Starodoubtsev, founder
Frank Russia & CIS. He continues
to directly manage retail real
estate for the region but also
assumes responsibility for the
operational management of all
business units.
He has an 18-year career
in the shopping center industry
in Russia and heads a team of
specialists working with developers of commercial facilities.
He joined Knight Frank in
2011 becoming partner and
regional director for retail real
estate. Before that, he was
managing director of Colliers
International.
Alan Baloev has been appoint-
ed Head of Capital Markets
at Knight Frank. His team provides investment consulting and
and largest private shareholder
of Knight Frank Moscow, previously combined the duties of
Managing Partner with the role
Technical University and holds
an MBA in strategic management.
Alexey Treshchev has been
of Chairman of the Board of
Directors of the company. He
continues to lead the Board of
Directors.
Andrey Solovyev has been
appointed Head of Residential
Department, Knight Frank Russia.
He has worked in real estate
since 2007, selling upscale
suburban properties in the
most prestigious areas of the
Moscow Region. In 2010 He
joined Knight Frank, leading the
country houses division. Prior
to joining Knight Frank, he held
the position of project manager
at Blackwood. He graduated
from St. Petersburg State Marine
appointed Head of Country
Houses. He has 10 years’ experience in sales, particularly in
prestigious areas of Moscow
region: Rublevo-Uspenskoe,
Novorizhskoye, Kaluzhskoe,
and Dmitrovskoe highway. He
joined Knight Frank in 2010 as
a consultant of country houses
and in 2011 was appointed
Deputy Head of the division.
Prior to joining Knight Frank, he
held the position of consultant
at Blackwood. He graduated
from Moscow State University in
economics, statistics and informatics.